Optional Retirement Plan

Faculty and staff can save more for retirement through the Optional Retirement Plan, a voluntary retirement savings/investment plan covered under section 403(b) of the Internal Revenue Code. This plan is a tax-deferred retirement option to help you save more for retirement in addition to the automatic workplace retirement plan—either the Minnesota State Retirement System or the Faculty Retirement Plan—you're enrolled in at the University.

Its tax deferral feature allows you to make contributions into your retirement account on a before-tax basis. This means you may reduce the amount of your salary that is taxable under both state and federal income taxes and delay paying taxes on the money you contribute as well as on your gains, dividends, and interest. Tax deferral can allow your savings to accumulate faster than an after-tax savings program.

Contributions are deducted directly from your paycheck so it's easy to build your retirement nest egg. You can choose from more than 350 investment options, ranging from aggressive growth mutual funds to conservative interest-bearing accounts from four top investment firms: Fidelity, Securian, Deutsche Asset Management, and Vanguard. The participating investment companies waive sales charges and account maintenance fees for University of Minnesota participants.

How much may I contribute?

You can contribute either 100% of your reduced salary or $18,000 for 2016—whichever figure is smaller. Your "reduced salary" is defined as the amount after your required contribution to your basic retirement plan.

If you are age 50 or older, you can contribute an additional amount to the plan. For 2016, that contribution can be up to $6,000.

Your participation in another employer's retirement plan during the year may affect your limit.

You may change or stop your contributions at any time by completing a new Salary Reduction Agreement and submitting it to Employee Benefits.

What's the minimum contribution?

You must invest at least $200 per year and can contribute a flat dollar amount or a percentage of your salary.

When should I start investing?

It's never too late to start investing for your retirement. Saving early lets you take advantage of compounding so you build wealth with even small, regular investments. The chart below compiled from figures provided by Fidelity Investments shows the results of investing $100 per month with an average return of 8% over a number of years. Over a 25-year period, investing this much could add up to over $95,000. Whenever you start, you should consider your risk level and how many years you have before retirement.

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Can I change investment funds?

Yes, you can select investment funds within a particular company. Subject to the investment company's restrictions, you may change your new contributions and move money you've already invested. Some companies permit transfers by phone or through their websites. Contact the company directly for specific information on their policies.

Can I change investment companies?

You can change investment companies at any time by completing a new Salary Reduction Agreement and an account enrollment form for the new investment company unless you already have an existing Optional Retirement Plan account with them. To transfer existing funds, you must complete a transfer form for the new investment company. You must also complete an account enrollment form for the new investment company, unless you have an existing Optional Retirement Plan account with them. Investment companies may have restrictions on transferring money to another investment company. Contact the individual company for more information.

How do I track my investments?

The University publishes quarterly Investment Performance Results online. Additional information is available on your quarterly statements and on the investment companies' websites.

How do I withdraw my money?

For the most part, funds may not be withdrawn before your retirement or termination of employment. The Internal Revenue Service restricts when funds may be paid from your account. Please note that IRS rules are subject to change. You may withdraw your money only under these circumstances:

Attaining the age of 59½

When you encounter a severe financial hardship, such as the foreclosure on your home, purchase of a primary residence, college expenses for a child, significant out-of-pocket medical expenses, damage to your principle residence, or funeral expenses.

You are required to make payment to a former spouse, according to the provisions of a Qualified Domestic Relations Order

You become totally disabled

Death

Hardship withdrawals are subject to a 10% penalty tax unless they are for out-of-pocket medical expenses totaling more than 7.5% of your adjusted gross income.

What taxes must be paid when I withdraw my savings?

Money withdrawn is subject to federal and state income tax. Except for "rollovers," annuities, and regular installments over 10 years or more, all other payments will have 20% withheld automatically for federal taxes. If you are under age 59½ when you terminate, payments that are not part of a "rollover" will be subject to an additional 10% penalty tax.

Disclaimer

Please note that this material is intended for informational purposes only, and no warranty is given regarding the information. None of the information is intended to constitute, nor does it constitute, financial advice. This information is not a substitute for professional financial advice, and each person should always consult his or her own financial or other professional advisors and discuss the facts and circumstances that apply to the person. So far as it is permitted by law, the University of Minnesota disclaims liability for any loss, however caused, arising directly or indirectly from the use and content of this Web site.